How is a mutual fund defined?

A mutual fund is defined as an investment vehicle that pools money from multiple investors. This structure allows individual investors to contribute their funds, which are then collectively managed by professional portfolio managers. The pooled resources are invested in a diversified portfolio of assets, such as stocks, bonds, or other securities, thereby enabling investors to benefit from economies of scale and professional management that they might not achieve individually.

The concept of pooling funds is crucial for mutual funds, as it allows for diversification, which can reduce risk. By investing in a variety of securities, a mutual fund can spread out the potential for loss across many different investments rather than relying solely on a single investment. This characteristic attracts many investors, particularly those who may not have the expertise or capital to manage a diversified portfolio on their own.

The other options relate to financial products but do not accurately describe mutual funds. They focus on unrelated concepts like loans, insurance policies, or government savings plans, which do not encompass the essential nature of mutual funds as collective investment schemes.